Indholdsfortegnelse for Issue 977 i MoneyWeek

This has been a more than usually bad-tempered election campaign. We are going to press just as it ends, so as I write, I’m afraid I still don’t know what the outcome is. However, here’s what we do know: regardless of who has how many seats in Parliament this morning, they are starting in a pretty good place. Yes, we still have a budget deficit, and yes, all the party promises of more, more and then a little more spending during the campaign were uncomfortable. But nonetheless, the work done over the last decade has seen the budget deficit as a percentage of GDP fall to a mere 1.2% by last March. Practically balanced. The employment rate is 76%. The unemployment rate is 3.8%. Real (after-inflation) wages are rising. Our…

Staff at the BBC’s New Broadcasting House in London had their festive cheer quashed after bosses decided the corporation’s 16-foot Christmas tree posed a “security risk” and tore it down a week after installing it. The BBC refused to say how much it had paid for the tree, but similar examples cost around “£2,000 fully decorated”, says The Daily Telegraph. Vinegar producers in Modena have failed in a bid to stop others using the term “balsamic”. The phrase “Balsamic vinegar from Modena” has been protected as an EU “geographical indicator” since 2009, but the European Court of Justice said that protection did not extend to “non-geographical terms”.…

Japan’s latest stimulus is to heal a “self-inflicted wound”, says Megumi Fujikawa for The Wall Street Journal. Prime Minister Shinzo Abe has announced a ¥13.2trn (£97.9bn) fiscal package to finance the repair of damage caused by October’s Typhoon Hagibis, put new digital technology into schools and reward shoppers for spending money. The hope is that the package will deliver a 1.4% boost to GDP and offset the negative effect of October’s consumption tax hike. The rise from 8% to 10% saw retail sales plummet 7.1% on a year before. Large fiscal stimulus was a hallmark of Abe’s early period in power when he pulled all available levers in an effort to end Japan’s long period of stagnation. Yet with Japan running the highest government debt levels in the developed world,…

Whatever happened to the notion of “stocks for the long term”? Far too many investors make the mistake of trying to time the market, says Mark Atherton in The Times, which means they jump in and out so frequently that dealing costs (and the missed opportunities they forfeit by being impatient) erode their returns. Professional investors do this too. The upshot is that the average holding period for US stocks plunged from 30 years just before the Second World War to less than two by 2012, according to America’s Ned Davis Research. It’s high time we all adhered to Warren Buffett’s maxim that you shouldn’t buy a stock unless you wouldn’t mind if the market closed for a decade and you couldn’t sell it.…

Denmark’s Astralis Group has become the first e-sports team to go public. It floated on Nasdaq’s Copenhagen exchange for small companies on Monday in a bid to raise up to $22m. E-sports, in which video-game players take each other on in front of spectators (who watch on streaming websites or in actual stadiums) has become a big business. The global market is worth $1.1bn and has doubled since 2016. The sector will be worth around $2bn in 2020, with an estimated 595 million people worldwide set to become spectators by then. Astralis is ranked the world’s number one in the popular shooting game Counter-Strike and has won millions of dollars in prize money.…

Tullow Oil shares have plunged to a 16-year low after the company slashed its annual production forecast from 87,000 barrels of oil a day currently to 70,000, say Julia Kollewe and Jillian Ambrose in The Guardian. Tullow has also scrapped its dividend and announced that its CEO and exploration director have left. Investors should be used to trouble at Tullow. Problems have “dogged the company” for the last seven years. Just last week Tullow told investors that two major projects in Guyana may be “less lucrative” than initially projected. Given this “annus horribilis”, it’s only right that it’s “the end of the road” for the executives, says Anthony Hilton in the Evening Standard. But still worse news may be on the way, since the dividend suspension and spending cuts won’t…

As we’ve pointed out several times, there’s no good case for investors to own commercial property via open-ended funds. But if you do own these funds, what are the risks? The M&G fund is now closed to withdrawals. When might it re-open? Ryan Hughes of AJ Bell suggests to Investment Week: “Given how long it takes to sell commercial property it is reasonable to assume this suspension may last three months or longer. M&G also needs to sell enough to raise a new cash buffer, potentially around 20%, meaning they need to sell around £500m of property.” So if you own it, there is nothing you can do. To be clear, this is not a Woodfordstyle, “everything must go” situation. But nor is it ideal for the managers to find…

Andrea Jenkyns, aConservative standing for re-election as MP of West Yorkshire constituency Morley and Outwood, is being paid £25,000 a year as head of a university think tank that doesn’t yet exist, reports The Guardian. Jenkyns has been receiving payment since July from the University of Bolton to set up the Research Institute of Social mobility and Education (Rise), a think tank with the National Centre for Higher Education Policy. The role involves eight hours’ work a week. Her campaign has also received a private cash donation of £2,000 from the university’s vice-chancellor, George Holmes. Jenkyns defended the payments, saying that “the launch will happen early in the new year and I have been working to define the objectives and the structure of the think tank”. The Guardian reports that…

Reforms of the IR35 regime are due to come into force in April. The rules aim to tackle “disguised employment”, where workers set themselves up as self-employed contractors to secure more favourable tax treatment. The arrangement suits employers too: they pay less national insurance. While many contractors operate legitimately through such arrangements, HM Revenue & Customs has long suspected that employers and employees have been colluding in order to obtain a tax advantage. Many consultants should actually be taxed as employees, it believes. From April, the IR35 tax rules will therefore require employers to take responsibility for determining the employee status of all contractors. Employers will only be able to treat those freelancers who meet strict criteria as self-employed. In many cases, those currently working as contractors will have to…

Next year Vanguard, the world’s second-largest fund manager, is launching Britain’s cheapest private pension to date, “throwing down the gauntlet to its competitors and fuelling expectations of a price war”, says Emma Agyemang in the Financial Times. The self-invested personal pension (Sipp) will have an annual administration charge of 0.15%, capped at £375. That is far below the industry average of 0.35%, says independent analyst Platforum. There will also be no additional costs for exit fees, valuation statements or transfers. Vanguard says the Sipp will initially only be available to people who are building up their retirement savings, not those that have already started drawing on them. A pension drawdown service is expected to launch in the next tax year. Someone putting the full £40,000 annual pension allowance into the…

Aside from a few half-baked proposals and some conjured-up targets for extra house-building, the general election campaign was strangely silent on the issue of housing. Yet, as Liam Halligan says in the introduction to his book Home Truths, “housing is the most pressing domestic challenge facing the UK today. Far too few homes have been built over the last 30 years; relentless demand, in the face of inadequate supply, has seen prices spiral upwards”. With “millions of hard-working people denied the security and stability of home ownership” and condemned to a rental market in which costs have also spiralled upwards, politics is undergoing a “significant radicalisation”. “Growing numbers of voters entering middle age, even high-earning professionals, now face the locked door of housing unaffordability and, quite understandably, feel capitalism isn’t…

Being a value investor, seeking strong companies trading at a discount to their true worth has been the biggest challenge of recent years. Value investing is a strategy that has been out of favour not only this year, but for more than a decade. During this period there have been occasional glimpses of light at the end of the tunnel, but rare occasions of sustained reward for adopting a value approach. Nonetheless, we are sticking by our core principles and committing to traditional value and recovery factors. Stocks such as the three we highlight below are, we believe, showing attractive levels of medium-term profit and cash-flow growth. Key value factors are yet to emerge from a bear market, but the potential for healthy profits and cash flow to help generate…

• Judges are “rolling over obligingly” and divvying up prize money between contestants because they can’t decide on a winner, says Jennifer Selway in the Sunday Express. First the Booker Prize’s £50,000 was split between Margaret Atwood (pictured) and Bernardine Evaristo. Then the Literary Review Bad Sex in Fiction award, a prize for the most “poorly written, redundant, or downright cringeworthy passages of sexual description”, went to two winners. Now the Turner Prize’s £40,000 cash prize has been split between the four artists on the shortlist because the “cheeky blighters asked for it to be that way”. Clearly, says Alexandra Shulman in the Daily Mail, “competitions aren’t what they used to be”. • Hargreaves Lansdown is once again promoting funds other experts “will not touch with asbestos gloves”, says Jeff…

Around 1,500 investors who bought £5.8m in mini-bonds from Mexican-food chain Chilango could be left with “virtually” nothing as the group tries to restructure its finances, reports Anna Menin in City AM. Chilango has filed proposals for a compulsory voluntary arrangement to stave off administration. Bondholders will be offered the choice of cashing out at 10p in the pound, or swapping their bonds (originally marketed with an 8% yield) for preference shares. While these would carry an 8% annual dividend, this would only be payable “dependent on the success of the company”. Given that Chilango is currently loss-making, it’s not much comfort. Creditors have until 3January to vote on the plan.…

“Politics creates short-term volatility,” but “at the end of the day the business cycle matters above all”, Andrew Milligan of Aberdeen Standard Investments tells Michael Mackenzie in the Financial Times. “Political and protectionist noise” has repeatedly rattled markets this year, says Mackenzie, but with the MSCI World index up more than 21% and the FTSE All-World index loitering just shy of all-time highs, 2019 has been a reminder that deeper factors than yesterday’s headlines drive stockmarket returns. The global economy is on the mend Donald Trump provoked renewed alarm last week when he announced surprise tariffs against Brazil, Argentina and France. On Sunday Washington is due to impose new levies on $160bn of Chinese imports. One does wonder “whether investors are beginning to tire of the task of tracking the…

“The way that the modern economy works is to reward the rich for being, well, rich. Between 1965 and the late 1990s, household wealth was between three and four times GDP. In the last 20 years, though, it has jumped to just over seven times. In the past decade, a £350,000 investment would have earned as much as someone slogging their guts out on £26,000 a year. Wealth pays more than work does. The wealthy have the Bank of England to thank for driving up asset prices with quantitative easing and low interest rates... taxes on capital amounted to 1.5% of GDP in 2007... and were still 1.5% of GDP last year... Taxes on property in that time fell from 2.8% to 2.7% of GDP. Yet the richest 0.1% who…

Three to buy Codemasters The Sunday Telegraph “Music, books and video” are shifting onto tablets so fast that come Christmas morning Father Christmas has “very little to leave under the tree” these days. Developer Codemasters, which is best known for its motor-racing games, is at the forefront of the trend, with 62% of first half revenues coming from digital downloads. Digital technology reduces the need to invest in physical stock, which raises margins and makes it easier to monetise back catalogues. On a forecast price/earnings multiple of less than 12 the shares are also noticeably cheaper than those of industry peers. Buy. 239p Tatton Asset Management The Sunday Times New rules governing how financial advisers earn commission mean that they are increasingly outsourcing the work of stock-picking to online investment…

• Once synonymous with elite investors, Goldman Sachs is shifting towards the “wider consumer market”, says Lex in the Financial Times. It has already bought a stake in online investment manager Nutmeg. Now it plans to launch its own roboadvisory service for those “with as little as $5,000 to invest”. While it’s a good idea to try and reduce the earnings volatility that comes from its investment banking division, the changes could backfire if the shift towards the “mass market” tarnishes Goldman’s “gilt-edged brand”. Shareholders seem worried: the stock has trailed rivals by 39% over the past three years. • Things are “going from bad to worse” at Ted Baker, says Zoe Wood in The Guardian. The company’s stock has slumped by 83% in 2019 and it has warned that…

It has been a tough few years for Tesco. The UK’s largest grocery chain crashed in 2014 amid an accounting scandal and it has been struggling to revive its fortunes ever since. It sold off its South Korean and Turkish chains for more than $6bn, pulled out of the US and sold off British assets such as the Giraffe restaurant chain and its mortgage business. Dave Lewis, its chief executive until he leaves next summer, understandably wanted to concentrate on turning around its core British supermarkets. In the chain’s glory years, it felt it could export a winning formula and conquer the world. When it was in trouble, all those overseas units were just a distraction from the problems at home. Flogging the crown jewels The mooted sale of its…

The death of the liberal Brexit vision Ben Kelly City AM The vision for post-Brexit Britain has “run away” from liberal Brexiteers, says Ben Kelly. Ionce believed that Brexit “could be a liberal project” and that we’d “have the best of both worlds”. Swashbuckling Britain would become a global hub for commerce: “open for business, open for trade, open for people”. However, Theresa May chose a path that Boris Johnson has “doubled down” on in his attempt to win an election-winning majority from a coalition of Leave voters. From “whipping up xenophobic hysteria” by claiming that immigration will rise to 840,000 ayear under Labour, to implying that EU migrants are scroungers, the Tories have adopted a “decidedly illiberal stance”. The party has also committed to an “anti-trade doctrine”, a“buy…

Although Oakley Capital Investments (LSE: OCI), with £650m of assets, has been the best performer in the private-equity sector in the last year, it still trades on a 29% discount to net asset value (NAV). What makes this even more of an anomaly is the strong momentum in OCI’s underlying investments. Oakley’s management launched its first fund in 2004 to invest in “controlling stakes in mid-market opportunities, backing a founder/entrepreneur in businesses with complexity”, according to Steven Tredget, a partner. The subsequent three funds have been focused in three areas: consumption with a digital angle, education and technology, and media and telecommunications. They have focused on “well-established, profitable businesses rather than turnarounds”. Returns on 17 realised investments since inception have been 3.1 times cost, with a gross internal rate of…

• What does your company do? Prestige Pawnbrokers has become synonymous with securing loans against almost any high-end asset in a time when banks are unable to assist. The ability to transact within days, if not hours, of the initial appraisal has propelled it to the top in this sector. • What is your greatest achievement? Taking an idea and developing it into the country’s leading asset lender in a sector that had stagnated for decades. Working closely with Channel 4 for the production of the show Posh Pawn was a major coup, with over 50 one-hour shows transmitted and repeated globally over the past six years. This secured the brand pole position in an area previously untapped by many lenders. The publicity has ensured that the public became aware…

Every year I use the final trading page of the year to review my performance, starting with the positions I closed. Ibegan 2019 with 12 open positions consisting of five longs (Greene King, Shire, Saga, Cineworld and John Laing Group) and seven shorts (Netflix, Twitter, Snap, bitcoin, Just Eat, Weis Markets and Rightmove). Over the course of the year each of them was closed (though I’ve since suggested fresh short positions in Twitter, Netflix and bitcoin and had an ill-fated attempt to revisit my Just Eat short). The first of the positions to go were Shire and Saga. They were both closed in issue 929. Shire made a profit of £365 while Saga lost £525. In issue 935 I closed Netflix at a loss of £150. Snap I ditched four…

Softcat (LSE: SCT) is a software reseller and IT infrastructure provider for private companies and public bodies. The last financial year, which ended on 31 July, was a success, with revenue up by 29% to £992m and gross profit climbing by just over a fifth to £211m. The number of customers has risen along with profit per customer. Growth has continued into Softcat’s first quarter and the management team is looking forward “with confidence” to 2020. Since floating on the stock exchange in 2015 the shares have quadrupled and are up by 87% in the last year.…

Joel Steinger was born in Brooklyn in 1949 and in later life became friends with the gangster Meyer Lansky (known as the “Mob’s Accountant”), after his brother redecorated Lansky’s house. Steinger eventually married the daughter of a Miami banker, who is alleged to have been one of Lansky’s associates. After aspell working at his father-in-law’s import/ export firm, Steinger set up a boiler room selling phoney commodity options, resulting in a conviction for fraud and a lifetime ban from the securities ©Getty Images industry. This didn’t stop him running a variety of scams related to investments in everything from oil wells to diet pizza. In 1994 Steinger set up the Mutual Benefits Corporation (MBC). What was the scam? MBC specialised in selling viaticals, shares in the life-insurance policies of the…

Donald Trump was right about Baltimore. It is a “disgusting, rat and rodent-infested mess”. But it has its charms, in a low-rent kind of way. It is quirky. It is funky. Housing is relatively cheap. And the city makes it easy to feel superior, since half the fauna you meet on the downtown streets are either the walking wounded or petty criminals. “Over the past decade unemployment has risen in 56% of US counties” A half hour down Interstate 95, it is a different story completely. Where Baltimore is wild and poor, Washington is tame and one of the richest cities in the nation. It has fancy restaurants, houses worth millions, sleek offices. There, the people you meet on the street are powerful movers and shakers. Grand larceny is their…

Supporters of Newcastle United FC can take advantage of free tickets for the rest of the season as owner Mike Ashley attempts to break a boycott against his time in charge that has seen attendances fall to a ten-year low. Current season-ticket holders can claim a free-half-season ticket entitling holders to watch ten home games for nothing. Proving that “it’s an ill wind that blows nobody any good“, Storm Atiyah helped UK windfarms generate almost 45% of Britain’s electricity last Sunday. Customers on some “smart-energy tariffs” were even paid to use the excess, says The Guardian. Octopus Energy paid 2,000 customers 5.6p for every kilowatt-hour used in certain overnight periods.…

When Deutsche Telekom (DT) said it would enter the streaming wars many dismissed it as hopelessly late to a sector dominated by the likes of Netflix and Amazon, says, Arno Konkel in Focus Money. But the streaming market is far from saturated as people increasingly opt for the convenience of television on demand via the internet. One estimate says the German market can grow by another 40% to €1.5bn in four years. DT boasts 13 million broadband connections, so there is plenty of scope for enticing customers with its streaming package. It has also bolstered its sports television offerings by securing the broadcasting rights to the UEFA Euro 2024 competition. The stock yields 4.3%.…

The world’s biggest initial public offering (IPO) has finally reached the Saudi stock exchange, say Kate Kelly and Stanley Reed in The New York Times. The sale of 1.5% of Saudi Arabia’s state owned oil company, Saudi Aramco, early this week raised $25.6bn, eclipsing the $25bn raised by the Chinese online firm, Alibaba on the New York Stock Exchange in 2014 and making the entire company worth $1.7trn. The shares bounced by 10% on their first day, boosting the firm’s value to $1.9trn. Context is everything The Saudi regime might point to the money raised to claim that the flotation is a “triumph”, but “context is everything” says Nils Pratley in The Guardian. After all, the original plan “was to shoot for $2tn and sell 5% of the shares, rather…

On Tuesday, Democrats in the House of Representatives introduced two articles of impeachment against Donald Trump, charging the US president for “obstruction of justice and abuse of power” in his dealings with Ukraine, reports The Independent. Democrats say the president abused his power in demanding investigations from Ukraine to aid him in his 2020 re-election, while withholding military aid as it fights a war with Russia-backed insurgents. In a phone call with Ukrainian President Volodymyr Zelensky on 25 July, Trump asked him to announce an investigation into the “conspiracy theory” that Ukraine, not Russia, was responsible for the hacking of US Democrats in the 2016 election in a bid to give the idea credence, say Laurence Arnold and Billy House on Bloomberg. A week earlier, Trump had directed the withholding…

If we had to choose a word to sum up the most important theme in investment this year, it might be “liquidity”. In summer, we saw the beginning of the end for former star fund manager Neil Woodford’s asset management empire, as investors fled his funds faster than he could liquidate the assets that underpinned them. Now, liquidity has returned to haunt a section of the market that most investors might already have learned to be wary of – open-ended commercial property funds. The Brexit panic of 2016 In summer 2016, in the wake of Britain’s referendum vote to leave the European Union (EU), open-ended funds that owned commercial property were forced to prevent investors from withdrawing their money (they were “gated”, in the jargon). Why? The fundamental problem is…

• Ursula von der Leyen, who took over from Jean-Claude Juncker as president of the European Commission on 1 December, is paid a salary of €28,461 a month, reports the Daily Express. When tax-free allowances are added in, this rises to around €33,400 a month. All EU staff received a pay rise of 2% on 2 December, meaning she saw an increase of just under €560 a month on her second day in the job. In her previous role as Germany’s defence minister, von der Leyen (pictured) was paid €16,254 a month. • Mahmud Kamani and Carol Kane, who set up online fashion retailer boohoo. com 13 years ago, have pocketed £142.5m after they sold part of their stakes in the business. Kamani made £99.8m by selling 35 million shares,…

“I lose a lot of things, including money. If I had all the money I’ve dropped, I wouldn’t need to work again.” Comedian Arthur Smith (pictured), quoted in The Sunday Times “It’s hot, beautiful and there [are] tax breaks.” Singer Summer Walker on her recent move to Las Vegas, quoted in The Times “I don’t give a toss if [Tesla co-founder and CEO Elon Musk] is a visionary, a great engineer, or whatever baloney he claims. In my opinion, such a man is not fit to run a major firm… Musk is a product of our age. Entitled, arrogant, unbelievably rich and powerful, he reckons normal rules don’t apply to him. He’s a bit like that other serial sociopath Adam Neumann of WeWork – and we know how well that…

Travel and insurance provider Saga, under pressure from activist fund Elliott Advisors, has put its care business up for sale, says Edward Thicknesse in City AM. The sale of Saga’s live-in care brands Patricia White’s and Country Cousins follows concern over the group’s slumping share price, which has halved in the last year. The businesses made sales of £4m last year. Saga, which specialises in products for those over 50, issued a profit warning in April; it slashed its dividend and cut prices in its insurance business. Elliott bought a 5% stake in July, but has yet to make clear exactly what it hopes to achieve at Saga. Elliott is best known for its work in the US, but in Britain it has tussled with investment manager Alliance Trust and…

Will your customers pay their bills? Data just released by the invoice finance company MarketFinance suggests 39% of invoices were paid late in 2019, with the average delay almost doubling from 12 days to 23 days. And with insolvency statistics suggesting company failures have risen to a five-year high, the risk of your firm not getting paid for work that it has done is rising. That could turn a cash flow difficulty into a much more serious problem. For some firms, trade credit insurance could be the answer. This is insurance that covers your firm against nonpayment of bills – the number of claims made under such policies hit a ten-year high earlier this year, according to the Association of British Insurers. Such policies work by assessing the risk of…

An unfortunate side-effect of EU investment regulations introduced last year has been to put US-listed exchange-traded funds (ETFs) beyond the reach of UK retail investors. US providers concentrate on their own market and have decided not to shell out for the paperwork now required to sell to Europeans. So British investors cannot access a US-listed Pacific Alliance ETF. The next logical step would be to buy one of the Latin American investment trusts listed in London. But they are heavily skewed towards Brazil, so they won’t reflect the Pacific Alliance’s fortunes. That means considering the individual ETFs of each member country. The only UK-listed one is Mexico. The HSBC Mexico Capped ETF (LSE: HMEX) tracks the MSCI Mexico Capped index, which includes all listed Mexican companies in the top 85%…

Bookmakers around the country may have slashed the odds on a white Christmas this year, but experts are unsure whether snow, rain or sunshine has any impact on stockmarket prices. Sunshine has long been associated with boosting the economy through higher consumer and leisure spending, although it can also reduce demand for services such as energy. Given the well-documented link between levels of depression and the lack of vitamin D produced by sunlight, it would seem logical that sunshine could make investors more optimistic about the future. One piece of evidence in favour of sunshine having a positive impact stems from a 2003 study by David Hirshleifer and Tyler Shumway for the University of Michigan Business School. Hirshleifer and Shumway examined daily stockmarket prices for 26 countries between 1982 and…

Riverstone Energy (LSE: RSE) is a private equity fund that invests exclusively in the global energy sector. It has had a “turbulent” few months, says chairman Richard Hayden, with a weak oil price denting performance. The trust currently trades at a steep and widening discount to its net asset value (NAV), which currently stands at around 60%. The share price has been falling since mid-2017 and has now declined so far that the company was last week relegated from the FTSE 250 index. The stock has slumped by 66% in the last 12 months.…

2014 Tyrrell’s, Single Vineyard HVD Semillon, Hunter Valley, New South Wales, Australia (£23.99, seven branches of Waitrose; waitrosecellar.com). This monumental wine is made from sparse bunches of grapes harvested from vines planted in 1908! It comes from the Hunter Valley Distillery vineyard. The sandy soils here make wines with effortless beauty and no oak is used in the fermentation or maturation of this wine so it gathers its complexity from its vine age, the setting and the fact that it has spent five years slowly relaxing in the bottle. This is one of the most attractive and great-value elite wines of the year and it isthe perfect way to ease yourself into your feast with a wine that will shock you with its poise and precision. 1989 Château de Millet,…

£963 The average annual interest payment per person incurred on credit cards in Britain, The Money Charity estimates. One person was declared insolvent every four minutes between July and September. £281.78 How much the average British woman spends every year on her work Christmas party. The figure from fashion retailer Oasis includes travel, accommodation, make-up, hair and outfit. 6,891 The number of houses worth £1m and over sold in the first half of the year, a rise of 5% on the same period in 2018, according to an analysis of Land Registry data for The Times. The Northeast saw the biggest rise in such sales (663%), followed by the East Midlands (233%), and Yorkshire and the Humber (228%). London sales fell by 5%. $150,000 The asking price for a banana…